Foundations of Control RobbinsCh18

Chapter 18/ Topic 8 Controlling
Foundations of Control
Robbins, Bergman, Stagg, Coulter: Management 4e 2006 Pearson Education Australia
LEARNING OUTLINE
Follow this Learning Outline as you read and study this chapter.
G 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.
G The

control process
Describe the three steps in the control process. Explain why what is measured is more critical than how its 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 (contd)
G
Controlling for organisational performance

Define organisational performance. Describe the most frequently used measures of organisational performance.
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.
Qualities of an effective control system.

Identify
the qualities of an effective control system.
Discuss
how contingency factors affect the design of an organisations control system. how managers may have to adjust controls for cross-cultural differences.
Describe
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?
G
Control
H
The process of monitoring activities to ensure that they are being accomplished as planned and of correcting any significant deviations. To ensure that activities are completed in ways that lead to accomplishment of organisational goals.
The purpose of control

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

G
Market control
H
Emphasises the use of external market mechanisms to establish the standards used in the control system.
I
External measures: price competition and relative market share
Bureaucratic control
H
Emphasises organisational authority and relies on rules, regulations, procedures, and policies.
Clan control
Regulates behavior by shared values, norms, traditions, rituals, and beliefs of the firms culture. What is the link (criterion) for managers that determines the effectiveness of a control system?
H
Why is control important?

G
As the final link in management functions:

H
Planning
I
Controls let managers know whether their goals and plans are on target and what future actions to take. Control systems provide managers with information and feedback on employee performance. Controls enhance physical security and help minimize workplace disruptions.
Empowering employees
I
Protecting the workplace

I
How can an employee feel empowered through a control system?

The planningcontrolling link

Delegation. How do effective control Systems help?
Our focus
Feedback links goals Achieved goals: why/why not?
Figure 18.1
The control process

G
The process of control

1. 2.
3.
Measuring actual performance. Comparing actual performance against a standard. Taking action to correct deviations or inadequate standards.
Why do we compare both performance and The organisations expectations?
What specific examples from the Continental Case Can you relate?
10
The control process
What are some examples Of this process loop? What does a control loop Seek to achieve?
Figure 18.2
11
Measuring: how and what we measure

G
Sources of information G Control criteria

H
Personal observation MBWA

I
Employees
I I I
Reading between the lines
Satisfaction Turnover Absenteeism
H H
Statistical reports Oral reports

I H
Advantages/Disadvantages
Budgets
I I I
Written report
Costs Output Sales
What do you see as the advantages & disadvantages? Which ones should managers prefer in comprehensive control systems?
12
Common sources of information for measuring performance
Figure 18.3
13
Comparing
G
Determining the degree of variation between actual performance and the standard.
H
Significance of variation is determined by:

I
The acceptable range of variation from the standard (forecast or budget). The size (large or small) and direction (over or under) of the variation from the standard (forecast or budget).
14
Defining the acceptable range of variation

What type of control system does this suit?
Figure 18.4
15
Taking managerial action

G
Courses of action
H
Doing nothing
I
Only if deviation is judged to be insignificant. Immediate corrective action to correct the problem at once. Basic corrective action to locate and to correct the source of the deviation. Corrective Actions
J
Correcting actual (current) performance

I I
Change strategy, structure, compensation scheme, or training programs; redesign jobs; or fire employees
What are your views on the manager that does nothing?
16
Taking managerial action (contd)

G
Courses of action (contd)

H
Revising the standard

I
Examining the standard to ascertain whether or not the standard is realistic, fair, and achievable.
J J
Upholding the validity of the standard. Resetting goals that were initially set too low or too high.
17
Managerial decisions in the control process
What to be aware of ?
Figure 18.5
18
Controlling for organisational performance

G
What is performance?
H
The end result of an activity
What is organisational performance?

H
The accumulated end results of all of the organisations work processes and activities
I
Designing strategies, work processes, and work activities. (Job Design?) Coordinating the work of employees (Organising?)
19
Why is Measuring organisational performance important?
Asset Life Cycle? Acquiring, Managing, Renewing, Disposing

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.
how well customers are handled extent to which customer perceptions of value are built collaborative information sharing and social interaction Leading to members appropriate action
Figure 18.6
20
Organisational performance measures

G
Organisational productivity
H
Productivity: the overall output of goods and/or services divided by the inputs needed to generate that output.
I I
Output: sales revenues Inputs: costs of resources (materials, labor expense, and facilities)
Ultimately, a measure of how efficiently employees do their work.
How does Organisational Structure & Design Influence productivity?
21
Organisational performance measures

G
Organisational effectiveness
H
Measuring how appropriate organisational goals are and how well the organisation is achieving its goals.
I
Systems resource model

J
The ability of the organisation to exploit its environment in acquiring scarce and valued resources. The efficiency of an organisations transformation process in converting inputs to outputs. The effectiveness of the organisation in meeting each constituencies needs.
The process model

J
The multiple constituencies model

J
What does the manager care about irrespective of the model?
22
Organisational effectiveness measures

G
Industry rankings on:

H H H
Other measures:
G G
Profits Return on revenue Return on shareholders equity Growth 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
H H H
Use these and others to construct a Balanced Scorecard!
23
Tools for controlling organisational performance

G
Feedforward control
H
A control that prevents anticipated problems before actual occurrences of the problem.
I I
Building in quality through design. Requiring suppliers conform to ISO 9002.
Concurrent control
H
A control that takes place while the monitored activity is in progress.

I
Direct supervision: management by walking around.
What could be some problems with these tools?
24
Tools for controlling organisational performance (contd)

G
Feedback control
H
A control that takes place after an activity is done.

I
Corrective action is after-the-fact, when the problem has already occurred. Feedback provides managers with information on the effectiveness of their planning efforts. Feedback enhances employee motivation by providing them with information on how well they are doing.
Advantages of feedback controls

I
25
Types of control
Video: Westmead Hospital

Figure 18.8
26
Tools for controlling organisational performance: financial controls

G
Traditional controls
H
Other Measures
H
Ratio analysis
I I I I
Liquidity Leverage Activity Profitability

H
Economic Value Added (EVA) Market Value Added (MVA)
Budget analysis
I I
Quantitative standards Deviations
27
Popular financial ratios
Table 183a
28
Popular financial ratios (cont.)
Table 18.3b
29
Tools for controlling organisational performance: financial controls (contd)

G
Other measures
H
Economic Value Added (EVA)

I
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.
J
The choice is to use less capital or invest in high-return projects.
30
Tools for controlling organisational performance: financial controls (contd)

G
Other measures (contd)

H
Market Value Added (MVA)

I
The value that the stock market places on a firms past and expected capital investment projects If the firms market value (its stock and debt) exceeds the value of its invested capital (its equity and retained earnings), then managers have created wealth.
31
Controlling organisational performance

G
Balanced scorecard
H
A measurement tool that uses goals set by managers in four areas to measure a companys performance:
I
Financial, customer, internal processes, and people/innovation/growth assets
Can you identify visions, targets, initiatives, reflective actions from The Continental Case: Right Away and all at Once!
32
Information controls
G
Management Information Systems (MIS)

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

I
Data: an unorganized collection of raw, unanalyzed facts (e.g., unsorted list of customer names). Information: data that has been analyzed and organized such that it has value and relevance to managers.
33
Balanced Scorecard
STATEMENT OF VISION 1. Definition of strategic business unit 2. Mission / Vision statement To my shareholders If the vision succeeds, how will I differ? To my customers With my internal management processes Internal Perspective With my ability to innovate and grow Innovation & Learning
Financial Perspective
Customer Perspective
What are the Key Success Factors?
What are the Critical Measurements?

34
Understanding and realising the value: Focus

G G G G G G G
Make the strategy explicit Choose the measures Define and refine Deal with People Sounds like Project Management? Simplicity of scorecard makes people underestimate the difficulties to implement! Failure occurs when no agreement on scope or aims
35
6 Issues of a successful scorecard
Interfaces Strategy Map Roles Dialogue Incentives
IT Support
36
Benchmarking of best practices

G
Benchmarking
H
The search for the best practices among competitors or noncompetitors that lead to their superior performance.
I
Benchmark: the standard of excellence against which to measure and compare.
A control tool for identifying and measuring specific performance gaps and areas for improvement.
Important: Look Internally & Externally
37
Steps to successfully implement an internal benchmarking best practices program

1. 2. 3. 4. 5. 6.
Connect best practices to strategies and goals. Identify best practices throughout the organisation. Develop best practices reward and recognition systems. Communicate best practices throughout the organisation. Create a best practices knowledge-sharing system. Nurture best practices on an ongoing basis.
38
Qualities of an effective control system
Figure 18.10
39
Contingency factors in the design of control systems
Figure 18.11
40
Adjusting controls for cultural differences

G
Cross-cultural issues
H
The use of technology to increase direct corporate control of local operations Legal constraints on corrective actions in foreign countries 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!
41
Contemporary issues in control

G
Workplace concerns
H
Workplace privacy versus workplace monitoring:

I I
I H
E-mail, telephone, computer, and Internet usage Productivity, harassment, security, confidentiality, intellectual property protection How might Organisational Structure influence? The unauthorized taking of company property by employees for their personal use. Anger, rage, and violence in the workplace is affecting employee productivity.
Employee theft
I
Workplace violence
I
42
Workplace monitoring in 2000 and 2005
For Example: Unauthorised workplace use of the Internet What might be some problems?
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
43
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. 4346; and J. Greenberg, The Cognitive Geometry of Employee Theft, in Dysfunctional Behavior in organisations: Nonviolent and Deviant Behavior, eds. S.B. Bacharach, A. OLeary-Kelly, J.M. Collins, and R.W. Griffin (Stamford, CT: JAI Press, 1998), pp. 14793.
Table 18.4
44
Workplace violence
Witnessed yelling or other verbal abuse 42% Yelled at co-workers themselves Cried over work-related issues Seen someone purposely damage machines or furniture 29% 23% 14%
Seen physical violence in the workplace 10% Struck a co-worker 2%
What controls might be put in place to prevent these occurrences?

Source: Integra Realty Resources, October-November Survey of Adults 18 and Over, in Desk Rage. BusinessWeek, November 20, 2000, p. 12.
Table 18.5
45
Control measures for deterring or reducing workplace violence
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.
Table 18.6
46
Contemporary issues in control (contd)

G
Customer interactions
H
Service profit chain

I
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).
Corporate governance
H
The system used to govern a corporation so that the interests of the corporate owners are protected.
I I I
Changes in the role of boards of directors Increased scrutiny of financial reporting An issue of increasing contemporary focus and inlfuence? Why?
47
The service profit chain
A need to measure Tangibles and Intangibles! Can you relate this model to Porters Value Chain Analysis In Manufacturing Firms?
Figure 18.13
48
Corporate governance
G
G G G
The problem of corporate governance is a global one. Board members are not always sufficiently independent from management. More disclosure and transparency in reporting is occurring and needs to continue. Legislation such as Sarbanes-Oxley Mirrored in Australia by ASIC Think back to your 1st assignment? ASX increasingly active
49
Case Study Application

G G G G
Blurred Vision Text Book pp 730-731 In groups answer Questions 1-3 In groups answer Questions 4-5 In groups answer Question 6-7
50

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Chapter 18/ Topic 8 Controlling

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

is control and why is it important?

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

Controlling for organisational performance

Tools for organisational performance

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

Qualities of an effective control system.

the qualities of an effective control system.

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

Contemporary issues in control

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

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

The purpose of control

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

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

Designing control systems

External measures: price competition and relative market share

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

Why is control important?

As the final link in management functions:

Protecting the workplace

How can an employee feel empowered through a control system?

The planningcontrolling link

Feedback links goals Achieved goals: why/why not?

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

The control process

The process of control

Why do we compare both performance and The organisations expectations?

The control process

Measuring: how and what we measure

Sources of information G Control criteria

Personal observation MBWA

Reading between the lines

Satisfaction Turnover Absenteeism

Statistical reports Oral reports

Costs Output Sales

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

Common sources of information for measuring performance

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

Significance of variation is determined by:

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

Defining the acceptable range of variation

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

Taking managerial action

Correcting actual (current) performance

What are your views on the manager that does nothing?

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

Taking managerial action (contd)

Courses of action (contd)

Revising the standard

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

Managerial decisions in the control process

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

Controlling for organisational performance

The end result of an activity

What is organisational performance?

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

Why is Measuring organisational performance important?

Asset Life Cycle? Acquiring, Managing, Renewing, Disposing

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

Organisational performance measures

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