Foundations of Control RobbinsCh18

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia

Chapter 18/ Topic 8 Controlling

Foundations of ControlFoundations of ControlFoundations of ControlFoundations of Control

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 2

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

l 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.

l The control process

• Describe the three steps in the control process.

• Explain why what is measured is more critical than how it’s measured.

• Explain the three courses of action managers can take in controlling.


L E A R N I N G O U T L I N E (cont’d) Follow this Learning Outline as you read and study this chapter.

l Controlling for organisational performance

• Define organisational performance.

• Describe the most frequently used measures of organisational performance.

l Tools for organisational 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.



l Qualities of an effective control system.

• Identify the qualities of an effective control system.

• Discuss how contingency factors affect the design of an organisation’s control system.

• Describe how managers may have to adjust controls for cross-cultural differences.



l Contemporary issues in control

• Discuss the types of workplace concerns managers face and how they can address those concerns.

• Explain why control is important to customer interactions.

• Discuss what corporate governance is and how it is changing.

If planning is going well do we need to be concerned with control?


What is control?

l Controlm The process of monitoring activities to ensure that they

are being accomplished as planned and of correcting any significant deviations.

l The purpose of controlm To ensure that activities are completed in ways that lead

to accomplishment of organisational goals.

Which managers need to most be involved in the control process? Why?


Designing control systems

l Market controlm Emphasises the use of external market mechanisms to

establish the standards used in the control system.

n External measures: price competition and relative market

share

l Bureaucratic controlm Emphasises organisational authority and relies on rules,

regulations, procedures, and policies.

l Clan controlm Regulates behavior by shared values, norms, traditions,

rituals, and beliefs of the firm’s culture.

What is the link (criterion) for managers that determines the effectiveness of a control system?


Why is control important?

l As the final link in management functions:m Planning

n Controls let managers know whether their goals and plans

are on target and what future actions to take.

m Empowering employees

n Control systems provide managers with information and

feedback on employee performance.

m Protecting the workplace

n Controls enhance physical security and help minimize

workplace disruptions.

How can an employee feel empowered through a control system?


The planning–controlling link

Figure 18.1

Feedback links goalsAchieved goals:why/why not?

Delegation.How do effective controlSystems help?

Our focus


The control process

l The process of control1. Measuring actual performance.

2. Comparing actual performance against a standard.

3. Taking action to correct deviations or inadequate standards.

Why do we compare both performance andThe organisation’s expectations?

What specific examples from the Continental CaseCan you relate?


The control process

Figure 18.2

What are some examplesOf this process loop?

What does a control loop Seek to achieve?


Measuring: how and what we measure

l Sources of information

m Personal observation MBWA

n ‘Reading between the lines’

m Statistical reports

m Oral reports

n Advantages/Disadvantages

m Written report

l Control criteria

m Employees

n Satisfaction

n Turnover

n Absenteeism

m Budgets

n Costs

n Output

n Sales

What do you see as the advantages & disadvantages?Which ones should managers prefer in comprehensive control systems?


Common sources of information for measuring performance

Figure 18.3


Comparing

l Determining the degree of variation between actual performance and the

standard.

m Significance of variation is determined by:

n The acceptable range of variation from the standard

(forecast or budget).

n The size (large or small) and direction (over or under) of

the variation from the standard (forecast or budget).


Defining the acceptable range of variation

Figure 18.4

What type of control system does this suit?


Taking managerial action

l Courses of actionm “Doing nothing”

n Only if deviation is judged to be insignificant.

m Correcting actual (current) performance

n Immediate corrective action to correct the problem at once.

n Basic corrective action to locate and to correct the source

of the deviation.

n Corrective Actions

o Change strategy, structure, compensation scheme, or training

programs; redesign jobs; or fire employees

What are your views on the manager that does nothing?


Taking managerial action (cont’d)

l Courses of action (cont’d)

m Revising the standard

n Examining the standard to ascertain whether or not the

standard is realistic, fair, and achievable.

o Upholding the validity of the standard.

o Resetting goals that were initially set too low or too high.


Figure 18.5Figure 18.5

Managerial decisions in the control process

What to be aware of ?


Controlling for organisational performance

l What is performance?

m The end result of an activity

l What is organisational performance?

m The accumulated end results of all of the organisation’s work processes and activities

n Designing strategies, work processes, and work activities. (Job Design?)

n Coordinating the work of employees (Organising?)


Why is Measuring organisational performance important?

Figure 18.6

Asset Life Cycle?Acquiring, Managing,Renewing, Disposing

collaborative information sharing and social interactionLeading to members appropriate action

how well customers are handledextent to which customer perceptions of value are built

Personal reputation makes a difference

influences whether people ask for advice,

listen to what you have to say

or trust you to complete assigned tasks.


Organisational performance measures

l Organisational productivity

m Productivity: the overall output of goods and/or services divided by the inputs needed to generate that output.

n Output: sales revenues

n Inputs: costs of resources (materials, labor expense, and

facilities)

m Ultimately, a measure of how efficiently employees do their work.

How does Organisational Structure & DesignInfluence productivity?


Organisational performance measures

l Organisational effectivenessm Measuring how appropriate organisational goals are and

how well the organisation is achieving its goals.

n Systems resource model

o The ability of the organisation to exploit its environment in

acquiring scarce and valued resources.

n The process model

o The efficiency of an organisation’s transformation process in

converting inputs to outputs.

n The multiple constituencies model

o The effectiveness of the organisation in meeting each

constituencies’ needs.

What does the manager care about irrespective of the model?


Organisational effectiveness measures

l Industry rankings on:m Profits

m Return on revenue

m Return on shareholders’

equity

m Growth in profits

m Revenues per employee

m Revenues per dollar of assets

m Revenues per dollar of equity

Other measures:l Corporate culture audits

l Compensation and benefits surveys

l Customer satisfactionsurveys

Use these and others to construct a Balanced Scorecard!


Tools for controlling organisational performance

l Feedforward controlm A control that prevents anticipated problems before

actual occurrences of the problem.

n Building in quality through design.

n Requiring suppliers conform to ISO 9002.

l Concurrent controlm A control that takes place while the monitored activity is

in progress.

n Direct supervision: management by walking around.

What could be some problems with these tools?


Tools for controlling organisational performance (cont’d)

l Feedback controlm A control that takes place after an activity is done.

n Corrective action is after-the-fact, when the problem has

already occurred.

m Advantages of feedback controls

n Feedback provides managers with information on the

effectiveness of their planning efforts.

n Feedback enhances employee motivation by providing them with information on how well they are doing.


Types of control

Figure 18.8

Video: Westmead Hospital


Tools for controlling organisational performance: financial controls

l Traditional controls

m Ratio analysis

n Liquidity

n Leverage

n Activity

n Profitability

m Budget analysis

n Quantitative standards

n Deviations

l Other Measures

m Economic Value Added (EVA)

m Market Value Added (MVA)


Popular financial ratios

Table 183a


Popular financial ratios (cont.)

Table 18.3b


Tools for controlling organisational performance: financial controls (cont’d)

l Other measures

m Economic Value Added (EVA)

n How much value is created by what a company does with

its assets, less any capital investments in those assets: the

rate of return earned over and above the cost of capital.

o The choice is to use less capital or invest in high-return

projects.


Tools for controlling organisational performance: financial controls (cont’d)

l Other measures (cont’d)

m Market Value Added (MVA)

n The value that the stock market places on a firm’s past and

expected capital investment projects

n If the firm’s market value (its stock and debt) exceeds the value of its invested capital (its equity and retained

earnings), then managers have created wealth.


Controlling organisational performance

l Balanced scorecard

m A measurement tool that uses goals set by managers in four areas to measure a company’s performance:

n Financial, customer, internal processes, and

people/innovation/growth assets

Can you identify visions, targets, initiatives, reflective actions fromThe “Continental Case”: Right Away and all at Once”!


Information controls

l Management Information Systems (MIS)

m A system used to provide management with needed information on a regular basis.

n Data: an unorganized collection of raw, unanalyzed facts

(e.g., unsorted list of customer names).

n Information: data that has been analyzed and organized

such that it has value and relevance to managers.


Balanced ScorecardS T A T E M E N T O F V I S I O N

If the vision

succeeds, how

will I differ?

What are the Key

Success Factors?

What are the

Critical

Measurements?

To my To my With my internal With my ability

shareholders customers management to innovate and

processes grow

Financial Customer Internal Innovation &

Perspective Perspective Perspective Learning

1. Definition of strategic business unit

2. Mission / Vision statement


Understanding and realising the value: Focus

l Make the strategy explicit

l Choose the measures

l Define and refine

l Deal with People

l Sounds like Project Management?

l Simplicity of scorecard makes people under-estimate the difficulties to implement!

l Failure occurs when no agreement on scope or aims


6 Issues of a successful scorecard

Interfaces

Strategy Map

Dialogue

IncentivesIT Support

Roles


Benchmarking of best practices

l Benchmarking

m The search for the best practices among competitors or noncompetitors that lead to their superior performance.

n Benchmark: the standard of excellence against which to

measure and compare.

m A control tool for identifying and measuring specific performance gaps and areas for improvement.

Important: Look Internally & Externally


Steps to successfully implement an internal benchmarking best practices program

1. Connect best practices to strategies and goals.

2. Identify best practices throughout the organisation.

3. Develop best practices reward and recognition systems.

4. Communicate best practices throughout the organisation.

5. Create a best practices knowledge-sharing system.

6. Nurture best practices on an ongoing basis.


Qualities of an effective control system

Figure 18.10


Contingency factors in the design of control systems

Figure 18.11


Adjusting controls for cultural differences

l Cross-cultural issues

m The use of technology to increase direct corporate control of local operations

m Legal constraints on corrective actions in foreign countries

m Difficulty with the comparability of data collected from operations in different countries

The role of technology as impact on control: Direct versus Indirect in different countries!


Contemporary issues in control

l Workplace concernsm Workplace privacy versus workplace monitoring:

n E-mail, telephone, computer, and Internet usage

n Productivity, harassment, security, confidentiality,

intellectual property protection

n How might Organisational Structure influence?

m Employee theft

n The unauthorized taking of company property by

employees for their personal use.

m Workplace violence

n Anger, rage, and violence in the workplace is affecting employee productivity.


Workplace monitoring in 2000 and 2005

Source: Based on S. McElvoy, “E-Mail and Internet Monitoring and the Workplace: Do Employees Have a Right to Privacy?” Communications and the Law, June 2002, p. 69.

Figure 18.12

For Example: Unauthorised workplace use of the Internet

What might be some problems?

Robbins, Bergman, Stagg, Coulter: Management 4e © 2006 Pearson Education Australia 44Table 18.4Table 18.4

Control measures for reducing employee theft or fraud

Sources: Based on A.H. Bell and D.M. Smith. “Protecting the Company Against Theft and Fraud,” Workforce Online

(www.workforce.com) December 3, 2000; J.D. Hansen. “To

Catch a Thief,” Journal of Accountancy, March 2000, pp. 43–46;

and J. Greenberg, “The Cognitive Geometry of Employee Theft,” in

Dysfunctional Behavior in organisations: Nonviolent and Deviant Behavior, eds. S.B. Bacharach, A. O’Leary-Kelly, J.M. Collins, and

R.W. Griffin (Stamford, CT: JAI Press, 1998), pp. 147–93.


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-November Survey of Adults 18 and Over, in “Desk Rage.” BusinessWeek, November 20, 2000, p. 12.

Table 18.5

What controls might be put in place to prevent these occurrences?


Control measures for deterring or reducing workplace violence

Table 18.6Table 18.6

Sources: Based on M. Gorkin, “Five Strategies and Structures for

Reducing Workplace Violence,” Workforce Online (www.workforce.com). December 3, 2000; “Investigating Workplace Violence: Where Do You

Start?” Workforce Online (www.forceforce.com), December 3, 2000;

“Ten Tips on Recognizing and Minimizing Violence,” Workforce Online

(www.workforce.com), December 3, 2000; and “Points to Cover in a

Workplace Violence Policy,” Workforce Online (www.workforce.com), December 3, 2000.


Contemporary issues in control (cont’d)

l Customer interactionsm Service profit chain

n The service sequence from employees to customers to

profit: service capability affects service value which impacts

on customer satisfaction that, in turn, leads to customer

loyalty in the form of repeat business (profit).

l Corporate governancem The system used to govern a corporation so that the

interests of the corporate owners are protected.

n Changes in the role of boards of directors

n Increased scrutiny of financial reporting

n An issue of increasing contemporary focus and inlfuence?

n Why?


The service profit chain

Figure 18.13

Can you relate this model to Porter’s Value Chain AnalysisIn Manufacturing Firms?

A need to measure Tangibles and Intangibles!


Corporate governance

l The problem of corporate governance is a

global one.

l Board members are not always sufficiently

independent from management.

l More disclosure and transparency in

reporting is occurring and needs to

continue.

l Legislation such as Sarbanes-Oxley

l Mirrored in Australia by ASIC

l ASX increasingly active

Think back toyour 1st assignment?


Case Study Application

l “Blurred Vision” Text Book pp 730-731

l In groups answer Questions 1-3

l In groups answer Questions 4-5

l In groups answer Question 6-7

Foundations of Control RobbinsCh18

Documents